Tax Compliance and Psychic Costs: Behavioral Experimental Evidence Using a Physiological Marker
AbstractAlthough paying taxes is a key element in a well-functioning civilized society, the understanding of why people pay taxes is still limited. What current evidence shows is that, given relatively low audit probabilities and penalties in case of tax evasion, compliance levels are higher than would be predicted by traditional economics-of-crime models. Models emphasizing that taxpayers make strategic, financially motivated compliance decisions, seemingly assume an overly restrictive view of human nature. Law abidance may be more accurately explained by social norms, a concept that has gained growing importance as a facet in better understanding the tax compliance puzzle. This study analyzes the relation between psychic cost arising from breaking social norms and tax compliance using a heart rate variability (HRV) measure that captures the psychobiological or neural equivalents of psychic costs (e.g., feelings of guilt or shame) that may arise from the contemplation of real or imagined actions and produce immediate consequential physiologic discomfort. Specifically, this nonintrusive HRV measurement method obtains information on activity in two branches of the autonomous nervous system (ANS), the excitatory sympathetic nervous system and the inhibitory parasympathetic system. Using time-frequency analysis of the (interpolated) heart rate signal, it identifies the level of activity (power) at different velocities of change (frequencies), whose LF (low frequency) to HF (high frequency band) ratio can be used as an index of sympathovagal balance or psychic stress. Our results, based on a large set of observations in a laboratory setting, provide empirical evidence of a positive correlation between psychic stress and tax compliance and thus underscore the importance of moral sentiment in the tax compliance context.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by Center for Research in Economics, Management and the Arts (CREMA) in its series CREMA Working Paper Series with number 2012-19.
Date of creation: Nov 2012
Date of revision:
tax compliance; psychic costs; stress; tax morale; cooperation; heart rate variability; biomarkers; experiment;
Other versions of this item:
- Uwe Dulleck & Jonas Fooken & Cameron Newton & Andrea Ristl & Markus Schaffner & Benno Torgler, 2012. "Tax Compliance and Psychic Costs: Behavioral Experimental Evidence Using a Physiological Marker," QuBE Working Papers 001, QUT Business School.
- H26 - Public Economics - - Taxation, Subsidies, and Revenue - - - Tax Evasion
- H41 - Public Economics - - Publicly Provided Goods - - - Public Goods
- K42 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - Illegal Behavior and the Enforcement of Law
- D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
- D63 - Microeconomics - - Welfare Economics - - - Equity, Justice, Inequality, and Other Normative Criteria and Measurement
- C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
This paper has been announced in the following NEP Reports:
- NEP-ALL-2012-11-24 (All new papers)
- NEP-CBE-2012-11-24 (Cognitive & Behavioural Economics)
- NEP-EVO-2012-11-24 (Evolutionary Economics)
- NEP-EXP-2012-11-24 (Experimental Economics)
- NEP-IUE-2012-11-24 (Informal & Underground Economics)
- NEP-PBE-2012-11-24 (Public Economics)
- NEP-PUB-2012-11-24 (Public Finance)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- James Andreoni & Brian Erard & Jonathan Feinstein, 1998.
Journal of Economic Literature,
American Economic Association, vol. 36(2), pages 818-860, June.
- Falk, Armin & Menrath, Ingo & Verde, Pablo Emilio & Siegrist, Johannes, 2011.
"Cardiovascular Consequences of Unfair Pay,"
IZA Discussion Papers
5720, Institute for the Study of Labor (IZA).
- Armin Falk & Ingo Menrath & Pablo Emilio Verde & Johannes Siegrist, 2011. "Cardiovascular Consequences of Unfair Pay," SOEPpapers on Multidisciplinary Panel Data Research 380, DIW Berlin, The German Socio-Economic Panel (SOEP).
- Falk, Armin & Menrath, Ingo & Siegrist, Johannes & Verde, Pablo Emilio, 2011. "Cardiovascular Consequences of Unfair Pay," CEPR Discussion Papers 8463, C.E.P.R. Discussion Papers.
- Urs Fischbacher, 2007. "z-Tree: Zurich toolbox for ready-made economic experiments," Experimental Economics, Springer, vol. 10(2), pages 171-178, June.
- Konrad, Kai A. & Qari, Salmai, 2009.
"The Last Refuge of a Scoundrel? Patriotism and Tax Compliance,"
CEPR Discussion Papers
7215, C.E.P.R. Discussion Papers.
- Kai A. Konrad & Salmai Qari, 2012. "The Last Refuge of a Scoundrel? Patriotism and Tax Compliance," Economica, London School of Economics and Political Science, vol. 79(315), pages 516-533, 07.
- Konrad, Kai A. & Qari, Salmai, 2009. "The Last Refuge of a Scoundrel? Patriotism and Tax Compliance," IZA Discussion Papers 4121, Institute for the Study of Labor (IZA).
- Konrad, Kai A. & Qari, Salmai, 2009. "The last refuge of a scoundrel? Patriotism and tax compliance," Discussion Papers, Research Unit: Market Processes and Governance SP II 2009-04, Social Science Research Center Berlin (WZB).
- Gary S. Becker, 1974.
"Crime and Punishment: An Economic Approach,"
in: Essays in the Economics of Crime and Punishment, pages 1-54
National Bureau of Economic Research, Inc.
- Benno Torgler & Christoph A. Schaltegger, 2005. "Tax Amnesties and Political Participation," Public Finance Review, , vol. 33(3), pages 403-431, May.
- Alm, James & Jackson, Betty & McKee, Michael, 1992. "Institutional Uncertainty and Taxpayer Compliance," American Economic Review, American Economic Association, vol. 82(4), pages 1018-26, September.
- A. Mitchell Polinsky & Steven Shavell, 1999.
"The Economic Theory of Public Enforcement of Law,"
NBER Working Papers
6993, National Bureau of Economic Research, Inc.
- Erard, Brian & Feinstein, Jonathan S, 1994. "The Role of Moral Sentiments and Audit Perceptions in Tax Compliance," Public Finance = Finances publiques, , vol. 49(Supplemen), pages 70-89.
- Charles A. Holt & Susan K. Laury, 2002. "Risk Aversion and Incentive Effects," American Economic Review, American Economic Association, vol. 92(5), pages 1644-1655, December.
- Jordi Brandts & Orsola Garofalo, 2010.
"Gender Pairings and Accountability Effect,"
Labsi Experimental Economics Laboratory University of Siena
034, University of Siena.
- Daniel Houser & Robert Kurzban, 2002. "Revisiting Kindness and Confusion in Public Goods Experiments," American Economic Review, American Economic Association, vol. 92(4), pages 1062-1069, September.
- Alm, James & Jackson, Betty R. & McKee, Michael, 1993. "Fiscal exchange, collective decision institutions, and tax compliance," Journal of Economic Behavior & Organization, Elsevier, vol. 22(3), pages 285-303, December.
- Allingham, Michael G. & Sandmo, Agnar, 1972. "Income tax evasion: a theoretical analysis," Journal of Public Economics, Elsevier, vol. 1(3-4), pages 323-338, November.
- Dirk Engelmann & Martin Strobel, 2004. "Inequality Aversion, Efficiency, and Maximin Preferences in Simple Distribution Experiments," American Economic Review, American Economic Association, vol. 94(4), pages 857-869, September.
- Brian Erard & Jonathan Feinstein, 1994. "The Role of Moral Sentiments and Audit Perceptions in Tax Compliance," Carleton Industrial Organization Research Unit (CIORU) 94-03, Carleton University, Department of Economics.
- Benno Torgler, 2003. "Tax Amnesty and Political Participation," Working papers 2003/07, Faculty of Business and Economics - University of Basel.
- Alm, James & McClelland, Gary H. & Schulze, William D., 1992. "Why do people pay taxes?," Journal of Public Economics, Elsevier, vol. 48(1), pages 21-38, June.
- Jonas Fooken & Markus Schaffner, 2013. "The role of psychological and physiological factors in decision making under risk and in a dilemma," QuBE Working Papers 010, QUT Business School.
- Uwe Dulleck & Markus Schaffner & Benno Torgler, 2013.
"Heartbeat and Economic Decisions: Observing Mental Stress among Proposers and Responders in the Ultimatum Bargaining Game,"
QuBE Working Papers
003, QUT Business School.
- Uwe Dulleck & Markus Schaffner & Benno Torgler, 2012. "Heartbeat and Economic Decisions: Observing Mental Stress among Proposers and Responders in the Ultimatum Bargaining Game," CREMA Working Paper Series 2012-21, Center for Research in Economics, Management and the Arts (CREMA).
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Anna-Lea Werlen).
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.